In the News Teaching Activity – the UK’s unemployment rate may be lower than the statistics suggest (Feb 2024)
The Office of National Statistics has been concerned about how accurate its measurement of unemployment has been recently. Poor measurement has implications for economic policymaking.
The UK's unemployment rate at the end of last year might be lower than initially estimated, with new data from the ONS suggesting a rate of 3.9% for the three months to November, down from the previous estimate of 4.2%. The ONS are investigating the data quality and their ongoing work is expected to conclude by September. The potential adjustment may influence the Bank of England’s decisions on interest rates, with financial markets currently anticipating a decline in borrowing costs starting from May. However, lower unemployment could mean interest rates stay higher for longer because it implies less spare capacity in the economy. In their 31st January meeting, there was an unusual split from the Monetary Policy Committee, with two wanting an increase and one arguing for a decrease in base rates. The last time members voted for opposite moves was 2008. The eventual vote was 6-3 in favour of maintaining the base rate at 5.25% to keep the UK’s inflation rate moving towards its 2% target.
1 How is the unemployment rate measured in the UK?
2 Why might lower unemployment ‘mean interest rates stay higher for longer’?
3 Discuss how the adjustment downwards in the official unemployment rate may affect the macroeconomy.